David Gennarelli - Director-Investor Relations Carl Bass - President, Chief Executive Officer & Director Richard Scott Herren - Chief Financial Officer & Senior Vice President.

Keith E. Weiss - Morgan Stanley & Co. LLC Steve M. Ashley - Robert W. Baird & Co., Inc. (Broker) Brent John Thill - UBS Securities LLC Heather Anne Bellini - Goldman Sachs & Co. Jay Vleeschhouwer - Griffin Securities, Inc.

Philip Alan Winslow - Credit Suisse Securities (USA) LLC (Broker) Matt Hedberg - RBC Capital Markets LLC Richard Hugh Davis - Canaccord Genuity, Inc. Sterling Auty - JPMorgan Securities LLC Saket Kalia - Barclays Capital, Inc. Brendan John Barnicle - Pacific Crest Securities LLC Gregg S. Moskowitz - Cowen & Co. LLC Walter H.

Pritchard - Citigroup Global Markets, Inc. (Broker) Kasthuri Gopalan Rangan - Bank of America Merrill Lynch Steve R. Koenig - Wedbush Securities, Inc..

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Autodesk Q4 Fiscal 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I would now like to turn the conference to our host, Mr. David Gennarelli, Senior Director of Investor Relations. Sir, you may begin..

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our fourth quarter and fiscal 2015. Also on the line is Carl Bass, our Chief Executive Officer; and Scott Herren, our CFO. Today's conference call is being broadcast live via webcast.

In addition, a replay of the call will be available at autodesk.com/investors. As noted in our press release, we have published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them on this call.

During the course of this conference call, we will make forward-looking statements regarding future events and the anticipated future performance of the company, such as our guidance for the first quarter and full-year fiscal 2016, our long-term financial model guidance, the factors we used to estimate our guidance, our transition to new business models, our market opportunities and strategies, and trends for various products, geographies and industries.

We caution you that such statements reflect our best judgment, based on factors currently known to us and that actual events or results could differ materially.

Please refer to the documents we file from time-to-time with the SEC, specifically our Form 10-K for the fiscal year 2014, Form 10-Q for the periods ended April 30, 2014, July 31, 2014, and October 31, 2014, and our current reports on Form 8-K, including 8-K filed with today's press release and prepared remarks.

Those documents contain and identify important risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements. Forward-looking statements made during the call are being made as of today.

If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements.

We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. During the call, we will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

A reconciliation of our GAAP and non-GAAP results is provided in today's press release, prepared remarks, and on the Investor Relations section of our website. We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison.

And now, I'd like to turn the call over to Carl..

Thanks, Dave, and good afternoon, everyone. Fiscal 2015 was the first year of our business model transition, and we are really pleased with the results. In addition to the strong financial performance, we are particularly pleased with the rollout, and acceptance of our new cloud-based products like Fusion 360, BIM 360 and PLM 360.

As the world looks to cloud and mobile products to get the jobs done, we are being rewarded with thousands of news customers. Our fourth quarter results continue to show strength across industries, geographies and products. Key metrics like billings, subscriptions and deferred revenue showed strong year-on-year growth.

Cash flow from operations for the quarter was a record. And we increased our recurring revenue base by adding a 100,000 net new subscriptions in Q4, bringing our full year to 385,000 net new subscriptions.

Subscriptions process through the Autodesk eStore, increased more than 150% and we experienced strong sequential growth from non-maintenance subscriptions. All in all, it was terrific quarter and a strong close to the year.

From a geographic perspective, strength was again broad based in Q4, anchoring this strength was large deal activities, which are transactions with a deal value greater than $1 million.

Q4 was a record for large deals, with a number of transactions increasing more than 50% and the total deal value increasing more than 40% over the fourth quarter last year. That's another sign that we are becoming a more strategic partner to our largest customers.

Many of these large deals were flexible enterprise licenses or EBAs, which create a recurring revenue stream and are recognized ratably. These EBAs drive deeper account penetration in which parts of the enterprise that we just weren't getting to previously. And these large deals also tend to includes buying decisions across the supply chain.

As customers look to align their design software, for increased efficiency and compatibility with their suppliers. Fourth quarter license revenue would have been approximately $40 million higher without the impact of flexible enterprise license agreements.

For the year, we transitioned close to $90 million in the enterprise license revenue to these recurring revenue streams. From an industry perspective, our strong Q4 results in AEC, can be attributed through the continued adoption of BIM in the building and infrastructure industries.

We experienced strong growth in AEC suites, as well as our cloud and mobile products. These new technologies support access to in-field and real-time information. Our manufacturing team delivered strong growth in Q4 driven by large deals, strengthened our product design suite and the addition of Delcam.

We are really encouraged by what we are seeing with our cloud-based products like Fusion 360 and PLM 360. For the first time in a long time, we are seeing fundamental changes in the competitive environment in manufacturing. The way products are being designed and built is changing, and customers are looking for tools to support these changes.

Our cloud-based products Fusion 360 and PLM 360 are leading the market. Fusion 360 is a complete product development system that allows distributed teams to work together on a project from concept through manufacturing.

Bringing together design simulation, visualization and fabrication tools into one product, is key for our products bringing better products to market faster. In terms of collaboration, the closest analogy for Fusion are gain up for software development or Google Docs for office documents.

The range of customers and the work they're producing is really inspiring. We estimate that 90% of our Fusion accounts are new to Autodesk. So it's another way that we're expanding our user base. PLM 360 is also bringing new users to Autodesk and expanding our presence within existing accounts.

We added over 50 new PLM logos in FY 2015 and many of these customers have already come back to us to expand their usage. While some of our PLM accounts are enterprise customers, the vast majority are S&P, which is a large Greenfield opportunity.

We were the first cloud-based PLM solution to the market over two years ago and we've built a sizable technology lead, which now includes cloud-based data management.

In Q4, we continued to see an increase in upgrade activity as legacy customers took the last opportunity to upgrade and a high percentage of the upgrades attach maintenance subscription.

This is all good news, as the end of life for upgrades resulted in converting tens of thousands of customers so the latest version of our products and bringing them with us into the future and we still have a huge opportunity to convert nearly 3 million customers to subscription offerings. Now, I'd like to talk more about our model transition.

At the heart of this transition is the dramatic shift in the software industry, total subscription and a technology platform shift to the cloud. Our customers are already seeing the benefits of the shift to the cloud and turn-based offerings with many of their other software applications, such as CRM or HR apps, and they are embracing the change.

Our subscription offerings provide a simplified product management and deployment experience. They also make it easier to introduce new tools and technologies into the workflow with lower upfront costs. This is changing how our customers use our products to solve design challenges in ways that just weren't previously possible.

We exited FY 2015 with even more conviction in our transition. In many ways FY 2015 was the set up for the next couple of years in which we will move a larger portion of our business to subscription and recurring revenue.

Earlier this month we announced that we would stop selling new perpetual offerings for most of the standalone products such as AutoCAD and AutoCAD LT on February 1 next year. After which they will be available only through desktop subscriptions.

We expect that this may lead some customers to buy new perpetual licenses before the change, while others will willingly choose the more flexible subscription offerings that provide increased functionality and new benefits.

Throughout the course of the year, we'll be working with our customers and channel partners to help them make the choice that's best for them because of 100% of desktop and cloud subscription revenues deferred are recognized ratably.

This will naturally puts downward pressure on traditional income statement metrics like revenue, operating margin, and EPS, through the transition. This pressure will increase the remaining perpetual license offerings have discontinued next year.

At that point, nearly all revenue will come from ratably recognized offerings, including maintenance, desktop and cloud subscriptions and EBAs. Also keep in mind, there will continue to be pressure on gross margin as we invest in our cloud infrastructure and our sales of cloud services ramps up.

On the flip side, the model transition will positively impact deferred revenue and subscription additions, which we expect will continue to have healthy growth rates. The traditional income statement metrics will start to rebound at the anniversary of the quarter in which we discontinue perpetual offerings.

From there we would expect a material rebound in financial performance. Those considerations are factored into our guidance for FY 2016, which calls for 3% to 5% growth in both billings and revenue. Our FY 2016 guidance also reflects six points of currency headwinds for billings and four points of currency headwinds for revenue.

In other words, our guidance for billings growth at constant currency would be 9% to 11%, and our guidance for revenue growth at constant currency would be 7% to 9%. Healthy growth rates over strong performance in FY 2015. To wrap things up, we're really pleased with the direction of the business.

This past year shaped up to be much stronger than our initial view, and we remain confident in our long-term business model transition. Goals of 12% billing, CAGR 20% more customer value, 50% more subscriptions and 30% operating margins.

We look forward to building on these early successes and transitioning Autodesk to a more profitable and recurring subscription based model over the coming years. Lastly, I want to thank our employees and partners for their outstanding efforts and contributions over the past year. It was a great team effort.

Operator, we'd now like to open the call up for questions..

Certainly. And our first question comes from Keith Weiss from Morgan Stanley. Please go ahead..

Excellent. Thank you, guys, for taking the question, and very nice quarter. I was wondering if you could give us a little bit of color about how we're looking for this sort of transition from perpetual to subscription to unfold? You give us a very impressive subscriber guidance for FY16.

Could you give us a little bit of understanding, namely, how you're going to try to incent customers to act – whether you're going to be trying to push them more towards subscribers or desktop subscriptions in the near term? Or is it going to – or is the pricing going to be equivalent between perpetual and professional desktop subscription?.

Yeah. Keith, thanks. Two things in the way that we're thinking about moving customers more towards desktop subscription. We would like them to move there, one is certainly as you – it suggests through price, the other way to do it is, we will make sure that the offerings on desktop subscription have more value for the customers than the other.

We will put things in those products that are not available in the traditional way. Having said that I think even last quarter I said the same thing.

A customer who is happy buying perpetual licenses and subscriptions, we will – we're going to continue to allow them to do it and move at their own pace, but what we're going to try to do is incent them do it rather than beat them with the stick to do it..

Got it.

What would be some of those incentives, outside of pricing?.

As an example, some of the other cloud connected services..

Okay..

So you will have access to them in one product, but not in the other, would be an example of something like that..

So a desktop subscription would have it, but the maintenance -.

Traditional one would not..

Okay..

And we can do this differentially, how we're applying this consumption based models around things like cloud credits, so we can vary how many they have, we can vary what services they have access to. There were actually a fair number of knobs and dials in there.

We're a little bit – kid of little bit at this point to say exactly what they are, partially because we don't fully understand, we want to understand our customers reactions to the incentives as put them in place..

Got it. Thank you..

Our next question comes from Steve Ashley of Robert W. Baird. Please go ahead..

Great. I'd just like to ask about AutoCAD LT. I know that you were thinking of transitioning the pricing there from licensing to subscription. Just wondering where we are with that.

And if there is a transition to subscription, is that having an impact on the revenue growth in that product group?.

Yes. We've started making desktop subscriptions available, customers are definitely taking advantage of it. LT is one of the places where it's a natural for a certain class of customers particularly those who are price sensitive for upfront – upfront they have to pay.

And yes, every customer we try to move to desktop subscription affects revenue in the short-term..

Yes. And my other question was just around the EBA business.

How did the amount of business you did in the fourth quarter compare to the amount you had done in the third quarter?.

Substantially higher. Almost half of it was done in the fourth quarter..

Yeah, sequentially Steve it was more than double quarter-on-quarter. The number of transactions greater than a $1 million. So it was strong growth..

Perfect..

And I'd just say in general, I mean, we have been – I can't say it's strong, how great the EBA business has been, just in general, the investment we made in working with our large customers.

This came about a number of years ago, where we recognized that we really build an incredibly strong portfolio of products and even some of our best customers didn't know about it. And in many ways some of our more traditional channels were not in a position of convincing the largest companies in the world of what we actually had.

And so we made a fairly large investment in selling direct or selling in conjunction with our best partners and it has made a huge difference and I think as we outlined at our Analyst Day, we still think there's a lot more there. So we still think this is a big source of growth over the next few years and each quarter keeps improving it..

Great. Thanks..

Our next question comes from Brent Thill of UBS. Please go ahead..

Thank you. Carl, on manufacturing, it was surprisingly strong, versus what some of your competitors have said. I'm curious what you're seeing, in terms of share gains versus your peers. Combined with execution, what would you say that you're seeing there? And I had a quick follow-up for Scott..

Sure, Brent. I think there are two aspects. So one, on the little bit more bearish, I think I fall into the same category of some of our competitors around the worldwide economy.

I mean, in that way, I mean there is a little bit of noise in the emerging economies, I think for manufacturing, the place that probably gives all of us the most concerned is Japan, that despite all their efforts, they just can't seem to jumpstart the economy. So, there is a little bit of macroeconomic concern on the much more bullish side.

I think there are two things going on right now. I think we've had solid execution. As I said in the previous answer to Steve, I think we have great offerings for our customers that we built over a long period of time. The second thing that's adding to this is what we are doing on the cloud.

A number of our competitors have just chosen at this point not to do anything substantial there.

And I think this will change over time, I don't think this is an advantage that we will have forever, but we invested heavily in PLM 360, we just brought the part of PLM that most people think of this PLM, really data management or document management to the cloud, which greatly expands the opportunity there.

What we are doing in the Fusion 360 is really kind of reinventing how CAD will be used in the future. So, and I think people are recognizing it. The reason why I led in about our estimate of 90% new users is both in PLM and in Fusion, those are all share gains. Every one of those is not a new CAD or PLM customer.

They've been using previous things and as we've surveyed what they're using, they're coming from the very traditional legacy products. And so, we're really pleased with that. And so, that's certainly helping our growth..

Okay. And just as a quick follow-up for Scott on operating margins, 13% to 15% guided. It seems fairly conservative, assuming that you still want to hit your 30% ramp. Maybe if you could just walk through that progression and what you think is going to be the big impact this year on margins, given your size.

I think everyone was hoping for a little bit more..

Sure, Brent. If you look at our Q4 results, you see Op margins that are in the just below 13% range. So, but we are looking for improvement year-on-year. And I think there's a couple of things that are driving that. One is obviously, top line growth, albeit muted by some of the FX impacts.

The second is, we are – I think the team has done a really nice job of looking to rebalance and reprioritize everywhere they can, so that as we make some of these required investments to make the business model transitioned, whether it's investments we have to make in the sales team or inside the R&D teams or back-office systems and cloud infrastructure, we're doing a lot of that by rebalancing internally.

So, you see kind of the implied spend growth for fiscal 2016, despite of the lower than the spend growth that you saw on fiscal 2015, and those are the things that are contributing to the Op margin for next year..

And I think just in general, as you think about the transition Brent, the more successful we are at transitioning quickly, it's just arithmetic that revenue and EPS, and margin get affected by it.

And I think we've looked at this quite closely and we decided that, on balance the best thing we can possibly do is move as quickly as we can, mostly modulated by our customers' needs. So, that's really what's been driving. And so, we want to move quickly and to the extent that we're more successful at it, it has an arithmetic impact.

On the other hand, every one of those dollars that you see on the booking side, is money in the bank that comes back to the operating margin and EPS..

Understand. Thanks..

Our next question comes from Heather Bellini of Goldman Sachs. Please go ahead..

Great. Thank you. I have two quick questions. One, Carl, I was wondering if you could share with us, I know you've had some initiatives underway where you were trying to reduce your churn rate in Q4 and focus on trying to drive higher renewal rates.

I was wondering if you could share with us some of the success you might have seen from some of the initiatives you've been put in place. And then the second question just follows up on what Brent was asking. If we look beyond this year, at analyst day, you talked about how you thought you could keep OpEx growth sub 5%, as you look out.

And that last year was a [year in] investment, and it seems like this year you're getting some investment. Obviously, we get the model transitions. But is there, can you give us some clarity as how you see the company growing OpEx as you look out beyond this year? What's required, in terms of investments? Thank you..

Yeah. Yeah. I think both Scott and I, can jump in on both of these. I mean, bunch of positive stuff about making sure that more customers attached and renewed. And this one was in the – this was in a camp of simple execution.

We just started paying attention to it and measuring it and putting people, giving it to people, as a day job, working with – closely with our partners and we did – we've done much better..

Yeah, and the results – Heather, on the renewal rates, we obviously don't close that, but I'll tell you the results year-on-year, both in the Q4 and for the full year, attached rate and renewal rate are both up materially year-on-year.

But I think some of the disciplined and some of the increased focus that we put in place is a clearly paying dividends and as we see people making final purchases on upgrades and I think the same phenomenon will continue on final purchases on perpetual license, you see a very high attached rate, that also will bring along with it a high renewal rate..

Yeah. On the OpEx spend, I mean what we see is slightly higher than 5% growth in OpEx for this year, but that's kind of the area where we've been looking over the next three years, that kind of growth rate. Some of it is coming back from last year. We've built a hole, in some of the compensation programs, that really filled back in.

The other thing is, again, as we've decided – as we've seen such success and wanted to accelerate the transition.

There are two things that are consuming some of that is building out the cloud infrastructure to support that in terms of the stuff that supports actual customers and the other is the back office infrastructure, which needs to change fairly dramatically in order to support a very new business model. And so, those are the places to really think of it.

A lot of the rest, looks like cost of living and then Scott already mentioned. We're doing a lot to move expenses from one part to the other. It's opaque from your point of view, but there is a lot of movement of expenses from one place to the other..

Thank you..

Welcome..

Our next question comes from Jay Vleeschhouwer from Griffin Securities. Please go ahead..

Thanks, good evening. Carl, I'd like to ask about the composition of your subscriber ads, that is to say, the sources of those numbers. Back at the analyst meeting, you talked about 2.9 million active users who were not, however, paying maintenance or subscription.

It looks to us like the largest piece of that – or at least as large – is the BLP piece is what you've called upgraded but not attached. And that works out to at least 1.3 million.

And what do you think the conversion rate could be of that very large base of non-subscribers, as part of your guidance for this year? And then secondly, with respect to the constant currency billings growth for FY16, that's a couple of points better than we had assumed.

And yet, you've got at least a 10 point headwind for billings growth from the absence of upgrades, given that you seemingly had record upgrades in FY15. So perhaps, you could rank the sources of billings growth from the other components. For example, perpetuals, rentals, EFLAs.

How are you thinking about the build to the billings growth from the various sources?.

Yeah. So, two things about it, Jay. So, on the first one, I think your model might me more detailed than ours.

I'm not sure if I could actually tell you exactly where are you, I'm being slightly facetious here, but some of the customers actually kind of putting a tag on them and realize which bucket they're coming from, it's a little bit hard, because of the way, they may have been a customer and then re-enter with a new one or the way they've switched.

So, it's a little bit harder to tag precisely than you might imagine. When you get to looking forward, there was a big question mark that I tried to outline in kind of the prepared remarks was, we're not quite sure we did a number of experiments, but there are really two possible behaviors going forward as we get rid of perpetual licenses.

Some of our customers will definitely choose to hoard those licenses, if you will, they like the way they buy it now, they'd like to buy more of those, and others will see the advantages with the new model and move to flexible licensing. That's one of the big variables out there. We modeled primarily on the overall number.

The number of people that will get new licenses, and most of the variability in our modeling is around how much is in the first pile versus how many people are in that second pile.

And as we see the year play out and as we move into the first quarter and second quarter, we will be able to give you a little bit clearer guidance on what we're seeing, but, right now, we're shooting a little bit in the dark to know in which group they exactly fall into..

Jay, this is Scott. The only thing I would add to that is what we saw with the end of life of upgrades this year's very high attach rate on maintenance.

And if so, of course, we'll get that tail through next year in the revenue stream; on the billing side, I think, we expect to see that same kind of high attach rate to the customers that decide to buy perpetual and hoard, right..

Yeah..

So, I think there is besides though, the mix of which way they buy, I think we'll also see a very high acceptance..

I mean, I think, if you look really the gates we've setup is that, in the end, regardless of the way they buy, they end up as a subscriber..

Thank you..

You're welcome, Jay..

Our next question comes from Philip Winslow, Credit Suisse. Please go ahead..

Hi, guys. Thanks, guys. Congrats on a great quarter and outlook. I want to focus in on vertical by industry because, Carl, I know you talked a lot about – you can't talk about by geography, just geographies or industries.

When you think about what led to the improving growth that you guys have seen, does any vertical by geo stand out to you that has gotten better versus what you saw in the past? As you all contemplate the billings guidance for this year, how did you incorporate some of those changes versus, let's say, what verticals by geo were running at previously?.

Yeah. I'll give you my impression, Scott feel free to jump in. I've started out when the U.S. was strong and I mean, U.S. Re was strong all through the year, and that made a big difference. I think there have been some nervousness around Northern Europe and Central Europe, that did pretty well.

And for much of the year, many parts of Asia did well, like I said, the places that are on my radar right now in terms of the ones I'm more worried about, are Japan and obviously Russia.

Russia business has been reduced dramatically, and I worry on an ongoing basis, and in Japan despite all the economic stimulus and government action, they seem somewhat enabled to jump start more growth. And both of those are important markets for us. So, that's the part I worry about.

I think if you look more broadly, I think there is two things going on in different industries. I think the adoption of BIM in Asia, is still a big thing. It's not nearly fully adopted. I might even guess that it's half. There is still a lot of way to go. We're seeing lot more government initiatives, we're seeing lot more projects, beginning to adopt it.

And so we're still in the middle of a very strong technology transition, within the AEC industry, that's actually many ways getting broader as it reaches out to construction companies, when we talked about through mobile technologies, it gets there delivering real time information in the field.

On the manufacturing side, I think there is – as has been historically true, lots of pressure on manufacturers. They're looking for better ways to develop products, they're looking for new answers.

Many of our traditional competitors have kind of turned their back on medium potatoes if you will of the industry, of giving people CAD software that actually gets their job done and making better software. And they've gotten interested in other parts and other ways of serving customers. And we've been happy to fill-in that void.

And I think that's going to continue. The second thing is particularly the companies that are under a lot of pressure in terms of product innovation and reducing their time to market. They're really looking for new technology.

They are looking how to figure out, how to manage distributed teams, building products, much more willing to kind of break the norms, look at cloud and mobile technology for both PLM and for CAD. And I think we're clearly the leader there, we've been out there with both of our CAD and PLM products for two years and that's making a huge difference..

Yeah, Phil, the only thing I'd add is. Carl touched on lot of the bright spots, geographically. U.S. was bright, Germany was bright, across Northern Europe was bright. I think the other one that not quite at the same scale, but it was particularly strong in terms of growth there was China in Q4.

So, you see the overall APAC growth rate and it's definitely weighted down by what's happening in Japan. I think what might be a little bit easier to point out is the places that things didn't go well, and Japan was one of those, Russia was one of those, and on a much smaller scale Brazil was one of those, but we had a little bit of tough quarter..

Got it. Great, guys. Thanks a lot..

Our next question comes from Matt Hedberg of RBC Capital Markets. Please go ahead..

Yes. Thanks for taking my question.

Carl, what percentage of your business goes through the online store today? And what might that look like once we get through this transition? And maybe as a follow-up to that, how does the channel feel about this move to the online store, over time?.

So, right now, it's relatively small. The online store is a negligible for – I mean, and it's – the placement has any – it's in the U.S., is certainly the largest proportion of that. The other thing that we have talked about for a long time, we've always used the, eStore as a way to base the prices. So everything there is at list price.

And then, we don't control end user of pricing, but that is the one place where we do. So people tend to look at our eStore. They get reference prices from there, but more often the smaller customers transact in one or two ways with our more traditional partners or with some of the larger volume partners, I think, CDW or Dell, or Amazon.

So it's much more a price reference.

Now, I think as you go through this transition, I think there can be some change there on some of the things, and in particular I actually think this is going to be a win-win for us and our partners, the places where I'm most interested in seeing business go through the eStore for the transactions that are not cost effective for our partners.

And I don't want to see our partners wasting their time on things where they don't make money. And if we can provide electronic ways to do that that's great. Second thing, I'd say is we're starting to see electronic outlooks popup through our partners and distributors. And it's clearly the way some of our customers want to buy.

So, I think there will be a greater variety of choices out there, but for all of us it's driving greater efficiency in the business..

That's great. Very helpful. Thank you..

You're welcome, Matt..

Our next question comes from Richard Davis of Canaccord. Please go ahead..

Hey, thanks. Carl, I have my own opinions, but I was curious what your thoughts are. A lot of your competitors are not aggressively switching to cloud. You guys are. Look, I mean, I think you're on the right side of history.

Are you seeing any, I mean, you see it in the numbers, but how do you think about, would people just go, Oh, man, I don't want to do this cloud stuff. It's CB radio with more typing, or whatever? And would you lose people in that? Is there any risk of that, or how do you triangulate around that? Thanks..

Yeah, sure. That's a funny question, Richard. But it's a serious question. So, let me answer it this way. There are certainly customers now who don't see the cloud is the inevitability that I see it. And for them we continue to offer desktop products, there is the intermediate ground of desktop connected products.

So, you can continue to work like you did behind the firewall relatively isolated. You can also work in ways that allow you take advantage of cloud services. So, you get some, but maybe not all of the benefits. So you can kind of modulate your behavior, according to your tolerance.

On the other hand, it's – I guess I've been around long enough and watched enough of these transitions to recognize kind of the inevitability. And, I was around when people said CAD will never be done on a PC, it has to be done on the mainframe, I was there when it said, you can never design a car on a PC, it had to be done on a workstation.

Every car in the world today is designed on a PC. And in the same way, every bit of enterprise software is moving to the cloud. You've already seen it, it happened with ERP, and HR, and CRM. So you look at what's going on and it's very hard to imagine a world in which all of your IT is cloud-based except somehow some part of product development.

It makes very little sense, and particularly I think there is a better reason other than just kind of this inevitability argument, that I think is important. If you think of the challenges that most companies are wrestling with, they build these products in large distributed teams.

Many of them will tell you whether this is the supply chain and manufacturing or the companies that come together in construction, that the biggest problem is in communication and coordination.

So in some ways, there is nothing particularly rationale about having a behind the firewall solution for a constellation of companies and people that need to work together, that what you really want is the IT structure to mirror the structure – the economic structure of the people participating and I think the cloud serves that.

I've outlined this before, but if you just wanted to go, get down to press tax with the cloud through our customers, there is two big things thus far. It gives them the ability to do large, on-demand computing for their most difficult engineering problems, and whether that's analysis, simulation or visualization, that is an important part.

The second one is a less computing intensive task, but really critical to what they do every day, which is this coordination, and collaboration.

And the cloud is a central coordination point, and as you watch many of the other companies in the different parts of the industry, gain these advantages, it all comes about by having the centralized coordinating point. So, three years or four years ago, when we started on this journey, I think it was a lot more suspect.

I think, as the days go by, you get more and more convinced that we're – we're certainly on the right side of the history on this one..

Got it. Thanks..

You're welcome..

Our next question comes from Sterling Auty from JPMorgan. Please go ahead..

Yes, thanks. Hi, guys. I was wondering, I think you pushed back the actual elimination of the upgrade price by 30 days, if I'm not mistaken..

Yeah..

Any sense of what that actually did to the subscriber count in the quarter, meaning, obviously, that spilled it over into the first quarter.

But any way to quantify that?.

No. That's really hard for us to tell. All we saw was that there was a huge rush at the end. And, because of that, we wanted any of our customers who wanted to take advantage of it.

We did and we just gave a little bit of an outlet to it, so that – they had a little bit more time, for whatever reason, they were enable the process fee orders in that timeframe. So, but it's hard for us. I mean we will see the spike and at the end of quarter we'll know much more about it, but it's really hard for us to predict right now what it is..

Okay. And then, in terms of the transition, you mentioned a year from when you eliminate perpetual, you'll start to see the rebound.

What I'm curious about is, what do you anticipate being the end of the transition? In other words, is it three years until you go through the customer base and get back to the point where the income statement would be "normalized"?.

Yes, Sterling. This is Scott.

I think the – thinking through the elimination of perpetual which we've already announced for a standalone products, we saw a perpetual license out there for suites and haven't made an announcement there yet, but have said the 12 months to 24 months from the time that was announced that the all perpetual new license sales would end.

At that point you anniversary the date of the last sales of perpetual license and that's when some of the traditional methods that are in the P&L like reported revenues, and then down the stream into op margin and EPS will also begin to get back to a steady state.

So I like exactly what Carl said in the opening commentary, at the point that we anniversary the quarter where there's no more perpetual license sales is where we start to hit a more steady state again..

Yeah. The only thing I'd remind everyone because we've had lots of questions on this, is during that period it doesn't have to be blind faith. I mean as we've shown is billings and subscriptions both matter and they will be going – we've talked about how they will rise substantially and you can track that. And....

Deferred revenue..

And deferred revenue certainly. As you watch those other metrics and in some ways what we're saying is the metrics change, really, around just the calculations involved, but you can – they are almost perfect proxies for the health of the business. So, I think you can look at that.

When we come out of it, I think it maybe in a different – maybe different place, again we'll go back to revenue and op margin, EPS being more normalized. But they're still maybe more interest in billings and subs and deferred revenue, just because of the model transition.

So, if anything I think at the end, there will be more metrics that give an indication of the health of the business, but through the transition there is plenty to look at to gauge our progress..

No, that's certainly the case. And we saw that with Cadence Design and Aspen Technology and Ariba and a number of others that have gone through this. But one of the questions that always comes up, and we're seeing this more recently with Aspen technology, that's finishing their transition, is where you come out.

So when you eliminate perpetual, you're going to have the inevitable dip in that first year. That second year, your revenue, probably, doesn't make it back to where it was previously because the layering effect, I wouldn't imagine, unless there's going to be something different here.

So that's why I'm asking when do you get at least back to where you started before the elimination of perpetual, maybe use that as the gauge?.

Yeah. It's really, Sterling, a question of the rate and pace that our customers move from traditional licensing over to desktop – our desktop subscription license or to cloud. And we are working that process beginning this year to try and move people as quickly as we can over to the some of the newer subscription and ratable revenue model styles.

But the rate and pace that they adopt that will really dictate what the shape of the curve is when it's finished..

Yeah. Unlike you saw this year, I'm really pleased with the results, but we were imperfect in our projection of what would happen this year.

We didn't truly understand it at the beginning and it turned out to be very good and when we certainly course corrected along the way and I expect through the next year or two we will be doing the same as we gauge the behavior of our customers and partners, relative to the offerings we're putting out there..

All right, super, thank you..

Our next question comes from Saket Kalia from Barclays. Please go ahead..

Hey, guys. Thanks for squeezing me in, here. First, maybe for Scott, in terms of license revenue this year, you've obviously got a headwind from the discontinuation of the upgrade program, perhaps some headwind from proactive customers ahead of your perpetual license deadline, and then, maybe a little bit of tailwind from perpetual license hoarding.

So a lot of moving parts.

How should we think about where license revenue ultimately ends up this year, with all those different moving parts?.

Yeah, Saket we're not going to obviously provide guidance at that level of granularity, but I will tell you that what's going to drive the growth of perpetual this year is the announcement around end of life on standalone products.

So if you look at the prepared remarks the document with all the 17 pages worth of data, one of the statistics in there is 37% of our revenues are suite base, right. So you can begin to, then, peel back to what is standalone product-based. And then on the license side, it's probably a little bit higher than that 37% number.

So think of that chunk of our license revenues and that customer set, having a last opportunity to buy perpetual license. That's what's going to drive the license line. On the subscription line it's the same trend that we saw this year, it's high attach rate on the upgrade sales that will continue through the year and turn into maintenance revenues.

Also high attach rate we expect on perpetual license sales, as we hit that end of life toward the end of the year. So, those things will drive the subscription line..

Got it. Got it. And then, for my follow-up, you said that perpetual will, effectively, be gone in the next, in roughly 24 months.

Have you thought about, or, rather, how have you thought about the behavior of your customers that are buying perpetual license for suites, in terms of your guidance? Do you think they pause for a potentially similar change, maybe seeing the writing on the wall, or how have you thought about that for 2016?.

I think there's, I mean, I think, there are a handful of customers who are following this very closely. I think many customers actually contemplate these things on an as needed basis. We certainly, due to some degree, follow this much more closely than most of our customers.

I think the customers who're paying really close attention can, we've more than telegraphed. We've explicitly said what the plan has been, and we've talked about it for at least a year. So, I think they understand it.

Unlike I said before, I think there are two behaviors that will drive, some people will decide to buy ahead of the announcement, and others will decide to move to a more flexible offering. And as we go through this year, we'll be able to figure out what's there.

I think the other thing we're able to do is, I think we're able to kind of turn the dials to adjust what we've – what we'd like to see..

Very helpful. Thanks..

Our next question comes from Brendan Barnicle of Pacific Crest Securities. Please go ahead..

Thanks so much. Carl, following up on Sterling's question about these model transitions, as he said, we've seen them a few times. And one of the things that we have looked at has been free cash flow in lieu of EPS.

As we think about this model transition, would free cash flow be likely to bottom next year? And when might we start to see that inflection and turnaround in free cash flow, knowing that's going to come, probably, ahead of the changes in the more traditional revenue and EPS metrics..

Yeah. Brendan, we're not going to obviously forecast fiscal 2017 at this point. I would tell you though the free cash flow and the operating cash flows will follow closely along with the billings as opposed to anything in the – reported revenues in the P&L..

Okay. Great. Thanks, guys..

Our next question comes from Gregg Moskowitz from Cowen and Company. Please go ahead..

Okay. Thank you very much. Carl, you mentioned that you saw a strong consequential growth from non-maintenance subscriptions, which I think is a little different than what you've called out before.

Can you elaborate what you saw on that front? Was that strength really from the EBAs, or was there a change as well with regards to desktop subscription and your cloud?.

In both..

It is both..

Both things strongly grew. And, like I said, I think desktop, desktop subscriptions will have a more consistently increasing profile, whereas I think EBAs will still be subject to that seasonality. But I think both will be – we'll continue on an upward trend, but what I was referencing, both of those substantially grew..

Okay. Terrific. And then, just a follow-up to Brent's question earlier. Just wondering if you're still comfortable with reaching 30% operating margins by FY18. It would seem pretty difficult to get there if you only end up doing 13% to 15% this year..

Yeah. One of the things I would just say is that, as you work your models, it's very different when you're at 13% or 15%. Because your expenses and revenue aren't aligned, when it comes about because of the way we account for it, in some ways you are putting money in the bank.

And so, the growth rate that you can see in EPS or operating margin is dramatically different than happens under normalized conditions. In some ways, the dollar you put away today that you don't recognize comes back even though to some extent, most of the expense of that has already been – we've already spent that money.

So, I think we've spent a lot of time looking at this and what you get as you come out of this is dramatic increases, unlike increases we've seen in any other year and that speaks to the how well we will do in that year. What we're really doing is we're just putting money in the cookie jar right now.

And so, I think if you look at it through that lens – kind of simplistic corner store mentality lens, you kind of get it, the only reason it's not dropping to the bottom line now is through the accounting rules, not due to the fundamental economics of the business..

Great. Thank you..

Our next question comes from Walter Pritchard from Citi. Please go ahead..

Hi, thanks. I'm wondering there's a lot of moving parts in the subscriber numbers.

And I'm wondering when you think you'll be in the position, or what are you looking for to take place before you're going to start to give us some more visibility into the composition of the subscribers that you have and that you add every quarter?.

Yeah, Walter. The subscriptions numbers are still overwhelmingly driven by maintenance subscriptions.

And so, while we're seeing strong growth in both cloud and desktop, certainly strong growth year-on-year but sequentially very strong growth in those numbers, they're still small and so we're still overwhelmingly driven by maintenance subscriptions as the other two become material, and we think there is a benefit in breaking that out, of course we'll do so..

And then, Scott, I guess related to that, we've noticed on your website, you're doing a pretty significant discount for the desktop subscription on an annual basis.

And should we start thinking about the desktop subscription pricing and the maintenance pricing coming together and, ultimately, the offerings also coming together? To some degree that, once somebody is on them they have the same value. I guess you've talked about providing maybe some more value on the desktop side.

But should we start to think about those two coming together in terms of..

No, I wouldn't think about it that way, as we talked about before, we've said in the first year, we can provide incentives for folks to get there. There is nothing that says we need to do that in subsequent years. And I'd really think of the economics of each of these customers differently.

The other customers have paid a large upfront amount and to some degree deserve to pay less per year, whereas the ones who get this lower upfront cost can pay more over time. But I think in terms of getting people into the system, we will definitely continue to experiment with different price points and see what the results of that are.

That's one other things that we've talked about. But if I read through the lines, and what you're saying I would not model these two things as identical, I think that would be a large mistake..

Okay..

Yeah. The other lever there, Walt, of course is to use value, to attract customers to the cloud and desktop offerings based on the value that they provide and differentiate the value of those offerings versus maintenance..

Okay, understood..

Thanks..

Our next question comes from Kash Rangan from Merrill Lynch. Please go ahead..

Hi. Thank you very much. Can you give us a quick update on the folks that have installed licenses but are not on maintenance? I think there was an emphasis on getting as many of them as possible on subscription be it maintenance or pure subscription. And I believe that program also had a finite time period.

Can you give us an update on how that is coming along? And also, with respect to the variability of customers falling under either a subscription, the different kinds, how confident are you in your targets? Because the targets seem to be fairly firm in FY18 of a certain level of billings and operating margin implying a certain level of earnings.

It feels like there is a fair amount of variability between the two buckets. Just wanted to get your comments on that because that was said about a year back, but obviously things have come together in a different way. Just wanted to get your feel for that. Thank you..

Yeah. So what I would say in the short-term, I think looking at the short-term of moving the millions of people who are non-subscribers on. I think this will be an ongoing thing. I don't think there is any short-term phenomena there. I think there will be incentives. We will continue to be incentives.

The places that we encourage them to move will change as a programs change. But many of the 3 million customers are happy loyal customers and what we're trying to do is change the commercial arrangement between us. And we will continue to do that by making a variety of offerings. So there is nothing like that ended or expired.

There is still a lot of options in terms of how we go and addressing ways to get those customers into the new model..

Our next question comes from Steve Koenig of Wedbush Securities. Please go ahead..

Hi. Thanks, gentlemen, for taking my question. You know, you spoke a little bit about the experiments you've run and how the different types of new flexible offerings might play out.

I'm curious to get a little bit more color, perhaps, on subscribe to Autodesk, given that's more of a, maybe it could be seen as a replacement for the suites, a little bit more holistic approach to using a broad range of Autodesk products.

Is that more impactful next year, as those licenses for other products besides the standalone products get curtailed, or does that have traction this year? How important is that in the next, say, 12 months to 18 months....

Steve, I think you hit the nail on the head, I think it's a really important point. Yeah, what we're seeing is subscribe to Autodesk, which is a flexible licensing program for everyone from our smallest to our midsize customers, the people who aren't involved in like those EBAs. Those are mostly replacements, in our mind, for suites.

Certainly some people have single products, will also find that attractive, it also starts to deal with some of the network licensing things even on our single products. There is a network licensing component, many of our customers even on the LT deploy these in groups and subscribe to Autodesk begins to address that as well.

We hadn't announced detailed plans, but just to answer your question more pointedly, it will have the bigger impact of following year than it will this year..

Great. Thanks a lot, Carl. That's all I got..

Okay. Got it..

This concludes our Q&A session. I'll now turn it back to David Gennarelli for closing remarks..

That concludes our call today. If you have any follow-up questions, you can reach me at 415-507-6033. Thanks..

Ladies and gentlemen, this does conclude today's conference. Thank you for your attendant. You may now disconnect. Everyone, have a great day..